Buying a property is one of the most important and exciting moments in many people’s lives and if you are thinking of buying a house, today we are going to talk about the taxes you will have to pay for the purchase of your new home in Mallorca.
As Benjamin Franklin (1789) said “In this world there are only two things that are certain: death and paying taxes” and we are going to talk about the latter in this post.
To find out what taxes you will have to pay you have to know if the property you are going to buy is newly built or second hand.
Buying a new home
If you have chosen to buy a new property in Mallorca, you should know that the price of the property will be subject to Value Added Tax (VAT) at a reduced rate of 10% and that at the time of finalising the purchase through the execution of the public deed it must be paid in full.
Another tax on the purchase of a new property is the stamp duty (Actos Jurídicos Documentados), which in the Balearic Islands is 1.5% of the taxable base, although in some specific cases this tax can be reduced (more info ATIB)
Second-hand housing
If you have opted to buy a second-hand property, the tax you will have to pay is the ITP, a regional tax that is levied on sales between private individuals. The Property Transfer Tax (ITP) is a tax that in the Balearic Islands has a bracket between 8% and 11% depending on the final purchase price.
I will give you an example to give you an idea of how it is taxed. Imagine buying a property for 1.500.000 €, your calculation would be:
The first 400.000 € would be taxed at 8%.
The next 200.000 (600.000 €) would be taxed at 9%.
The next 400.000 (1.000.000 €) would be taxed at 10%.
And the last 500.000 € (1.500.000 €) would be taxed at 11,5%.
For both taxes, AJD and ITP, the deadline for payment imposed by the Tax Agency of the Balearic Islands is 30 working days from the date on which the taxable act or contract (generally the public deed) is carried out.
Source ATIB to find out more.
What to do if the seller is a NON RESIDENT
As in any real estate transaction, the seller also has tax responsibilities towards the state for having been the owner of a property in Spanish territory. In the case that the selling party is not resident in Spain, it is very important to know that you must withhold from the final payment the amounts for the liquidation of two taxes, the IIVTNU and the IRNR. This is done to ensure that the seller, being a non-resident, pays these taxes. Remember that if you do not withhold this money, you, as the purchaser, will be held liable for this payment. But, what are these taxes?
The Tax on the Increase in Value of Urban Land (IIVTNU), better known as municipal capital gains tax, is a municipal tax on the increase in value of urban land that the seller will have to pay as a result of the transfer of his property. The payment of this tax must be made within 30 working days from the date of transfer (public deed) and its calculation will take into account the taxable base and the tax rate proposed by the town hall where the property is located.
Click here to calculate the IIVTNU according to the town hall of Mallorca (source ATIB).
Non-Resident Income Tax (IRNR) is a direct tax on the income obtained (capital gain) by the owner who does not reside in Spain as a result of the sale of the property. In this case, the withholding you will have to make is 3% of the sale price and the payment must be made within 30 days of the date of transfer.
If the owner resides in Spain, you will not have to make any withholding as payment on account.
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I hope this article will help you to understand what taxes you will have to pay when buying a property in Mallorca. Of course, there are other costs such as notary fees, registration fees, etc.
Remember that everything mentioned in this article is for information purposes only and that laws and taxes can change over the years. Always use professionals who can advise you in the best possible way, for this reason in Real Estate Balear we have the collaboration of specialised legal professionals (DeSalvador law firm) to offer our clients a safe and quality service.
If you are thinking of buying your house in Mallorca, we will be delighted to help you.
